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Cato Brief Targets Supersized Punitive Damage Judgments

Joined by two leading economists, Cato says the Court shouldn’t tax corporate success

October 27, 2006

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WASHINGTON — On Tuesday, the U.S. Supreme Court is scheduled to hear Philip Morris v. Williams, a challenge to a massive punitive damages judgment levied against tobacco manufacturer Philip Morris. The Oregon judgment, upheld by Oregon’s Supreme Court, imposed damages over 96 times the size of the injury Philip Morris was held to have caused a plaintiff who claimed to have been duped into smoking cigarettes.

The Cato Institute’s friend of the court brief applies economic analysis to the punitive damages judgment. It is joined by noted economists A. Mitchell Polinsky of Stanford and Steven Shavell of Harvard, who have authored a number of influential academic studies of punitive damages.

Cato’s brief focuses, in particular, on the role that the wealth of the company should play in assessing whether punitive damages are proper or excessive.

“Trial lawyers often argue that the logic of deterrence requires large companies to pay more punitive damages than smaller companies,” Cato legal scholar Mark Moller, a co-counsel for Cato in the case, explains. “Cato’s brief demonstrates that punitive damages can’t be justified based on a corporate defendant’s wealth. Because companies make judgments based on profits, large companies and small companies generally have every incentive to take precautions necessary to avoid harm to others when damages are equal to the harm they cause. Adjusting the damages upward because a company is large or wealthy does little to deter, spawning excessive litigation and creating a tax on corporate success.”